The Daily

Judge Calls Texas Craft Beer Distribution Law Unconstitutional

Beer brewers in Texas are celebrating a victory after a Travis County judge ruled that a 2013 law that prohibited craft breweries from selling lucrative territorial distribution rights is unconstitutional.

Three breweries sued the Texas Alcohol Beverage Commission nearly two years ago over the 2013 law that expressly took away the right for breweries to sell those rights, handing them over to distributors, instead. Territorial distribution rights had allowed breweries to accept money from a distributor in exchange for giving that distributor the exclusive right to sell their product in a certain area. The law let distributors sell those product territorial rights, which they essentially got for free, and even allowed these companies to sell those rights to another distribution company while the manufacturer of the product never saw a dime from the sale.

The Institute for Justice, a Libertarian legal organization based in Virginia that represented three brewers that sued the TABC, argued the law forced brewers to give up millions of dollars in potential profits. "The Texas Constitution prohibits the legislature from passing laws that enrich one business at the expense of another," Institute for Justice lawyer Matt Miller, who represented the brewers in court, says. "This ruling is a victory for every Texas craft brewery and the customers who love their beer."

However, TABC has 30 days to appeal the ruling. Supporters of the law have argued that it kept the integrity of Texas' three-tiered system of alcohol regulation that dictates how the products are sold in check. This system requires that after a product is made, it must be sold to a distributor who in turn sells it to the public. It also meant that territorial distribution rights belong to distributors, not brewers.

Chip McElroy, co-founder and president of Austin-based brewer Live Oak, one of the companies that sued, said the ruling is vindication for what he called an injustice. "We do not hate distributors, nor do we believe they provide no value. Distributors provide great value in their ability to create supply chain efficiencies, maintain quality and grow the value of brands," McElroy wrote on Facebook. "At Live Oak, we self-distribute in most of our territories and work alongside distributors every day to bring quality to our retailers and customers. The work is often thankless, backbreaking and very hard."